<PAGE>
                                                                    Exhibit 10.5


                           IDERA PHARMACEUTICALS, INC.
                                345 Vassar Street
                         Cambridge, Massachusetts 02139

                                    March 24, 2006



Youssef El-Zein
Starco Center
Omar Daouk Street
Bloc B, 1st Floor
Beirut Central District
Beirut 2020-3313
Lebanon

Dear Youssef:

         This letter sets forth the terms and conditions of the engagement of
Youssef El-Zein (the "Advisor") as a non-exclusive financial advisor to Idera
Pharmaceuticals, Inc. (the "Company") in connection with the arrangement and
negotiation of an equity vehicle under which the Company may issue up to
$9,750,000 of its common stock (the "Transaction"). The Advisor, in his capacity
as financial advisor to the Company, has identified and will identify potential
non-U.S. investors and, subject to the Company's prior written approval, has
contacted or will contact such potential investors on behalf of the Company and
has provided and will provide such other services in connection with the
Transaction as the Company may from time to time reasonably request.

         The Advisor has not contacted or initiated and shall not contact or
initiate any discussions with any party or prospective investor without first
identifying such party or prospective investor to the Company and obtaining the
Company's prior written approval to make such contact or initiate such
discussions (such parties and prospective investors that are approved by the
Company are referred to herein as the "Approved Investors"). The Advisor shall
not have authority under this letter to bind the Company in any way to any
party, and nothing contained in this letter shall require the Company to accept
the terms of any proposal or undertake any other action that would result in the
receipt by the Advisor of a fee hereunder.

         The Advisor represents, warrants and covenants to the Company that:

                  (a)      He has not offered, offered to sell or sold and shall
         not offer, offer to sell or sell any securities of the Company on the
         basis of any written communications or documents relating to the
         Company or its business other than written materials furnished by the
         Company or previously approved by the Company in writing, including
         without limitation the Company's filings under the Securities Exchange
         Act of 1934, as amended (the "Offering Materials"). No communications
         (whether oral or written) or documents


<PAGE>

         relating to the Company or its business made or delivered by the
         Advisor have been or shall be inconsistent with the Offering Materials.

                  (b)      He has not offered, offered to sell or sold and shall
         not offer, offer to sell or sell any securities of the Company to any
         investor in the United States or to any United States person outside
         the United States.

                  (c)      He has not engaged and shall not engage in any form
         of general solicitation or general advertising which is prohibited by
         Regulation D ("Regulation D") promulgated under the Securities Act of
         1933, as amended (the "Securities Act"), in connection with the
         Transaction or any directed selling efforts in the United States (as
         such term is defined in Regulation S ("Regulation S") promulgated under
         the Securities Act). In addition, such Advisor has not taken and shall
         not take any action that might reasonably be expected to jeopardize the
         availability for the Transaction of the exemption from registration
         provided by Regulation S or the qualification of securities of the
         Company for offer and sale under any applicable foreign securities
         laws.

                  (d)      He shall make reasonable inquiry to determine that
         each investor is acquiring the securities of the Company for his or its
         own account for investment.

                  (e)      In the performance of his services hereunder, he has
         complied and shall comply with the U.S. securities laws and the
         securities laws in effect in any jurisdiction in which securities of
         the Company are offered by it and the rules, regulations and orders of
         any securities administrator existing or adopted thereunder.

                  (f)      He shall not receive, directly or indirectly, any
         remuneration in respect of any issuance and sale by the Company of its
         securities in the United States or to any U.S. person.

         In the event a Transaction with Approved Investors is completed during
the term of this letter, the Company will (i) pay the Advisor a fee in an amount
of $262,500 and (ii) issue to the Advisor three-year warrants (the "Warrant")
(in a form containing antidilution protection for stock splits and other similar
events and other customary provisions as agreed by the Company and the Advisor)
to purchase 1,155,076 shares of common stock of the Company (the "Warrant
Shares") at an exercise price per share equal to $0.96. The Warrants shall be
exercisable for cash only and following the second anniversary of the date of
issuance of the Warrants shall be redeemable by the Company for $.01 per share
following notice to the Advisor if the closing sales prices of the common stock
on each day of a 15 day consecutive trading day period ending within 30 days
prior to the notice is greater than or equals 250% of the exercise price of the
Warrants.

         The Advisor recognizes that the Company is subject to the rules of the
American Stock Exchange, including Section 711 of the American Stock Exchange
Company Guide. Accordingly, the Advisor agrees that notwithstanding the
foregoing the Company shall have no obligation hereunder to pay any fees or
issue any Warrants to the Advisor that would not comply



                                      -2-
<PAGE>

with the rules of the American Stock Exchange or that would require the Company
to obtain stockholder approval. In the event of such a conflict, the Company and
the Advisor agree to negotiate in good faith new compensation terms for the
Advisor.

         In addition to any fees payable to the Advisor under the terms of this
letter, the Company agrees to reimburse the Advisor for his reasonable
out-of-pocket expenses and the reasonable out-of-pocket expenses of the investor
in the Transaction, documented in reasonable detail, and incurred in connection
with the Advisor's activities under this letter or the Transaction; provided
that the Company shall not be required to reimburse more than $50,000 in
expenses hereunder, in the aggregate.

         The Company agrees to indemnify the Advisor and his affiliates and
agents (each such person being an "Indemnified Party") from and against any and
all losses, claims, damages and liabilities, joint or several, to which such
Indemnified Party may become subject under any applicable federal or state law,
or otherwise, related to or arising out of the engagement of the Advisor
pursuant to, and the performance by the Advisor of the services contemplated by,
this letter and will, subject to the limitation set forth below, reimburse any
Indemnified Party for all expenses (including reasonable counsel fees and
expenses, whether incurred in connection with third party claims or direct
claims against the Company) as they are incurred in connection with the
investigation of, preparation for or defense of any pending or threatened claim
or any action or proceeding arising therefrom, whether or not such Indemnified
Party is a party. The Company will not be liable under the foregoing
indemnification provision to the extent that any loss, claim, damage, liability
or expense is found in a final judgment by a court of competent jurisdiction to
have resulted from an Indemnified Party's breach of this letter, bad faith,
willful misfeasance, gross negligence or reckless disregard of its obligations
or duties. No Indemnified Party shall settle any claim for which indemnification
may be sought by him or it hereunder without the prior written consent of the
Company. The Company's obligations to indemnify pursuant hereto shall be limited
to the Indemnified Party's actual liabilities, losses, damages or expenses
incurred and shall not include any consequential damages or damages for loss of
business or reputation.

         The Company will have the right, at its option, to assume the defense
of any litigation or proceeding in respect of which indemnity may be sought
hereunder, including the employment of counsel reasonably satisfactory to the
Advisor (the Advisor hereby agrees that Wilmer Cutler Pickering Hale and Dorr
LLP is satisfactory to the Advisor) and the payment of the fees and expenses of
such counsel, in which event, except as provided below, the Company shall not be
liable for the fees and expenses of any other counsel retained by any
Indemnified Person in connection with such litigation or proceeding. In any such
litigation or proceeding the defense of which the Company shall have so assumed,
any Indemnified Person shall have the right to participate in such litigation or
proceeding and to retain its own counsel.

         Upon receipt by an Indemnified Person of actual notice of a claim,
action or proceeding against such Indemnified Person in respect of which
indemnity may be sought hereunder, such Indemnified Person shall promptly notify
the Company with respect thereto. In addition, an Indemnified Person shall
promptly notify the Company after any action is commenced (by the


                                      -3-
<PAGE>

way of service with a summons or other legal process giving information as to
the nature and basis of the claim) against such Indemnified Person in respect of
which indemnity may be sought hereunder. In any event, failure to notify the
Company shall not relieve the Company from any liability which the Company may
have on account of this indemnity or otherwise, except to the extent the Company
shall have been prejudiced by such failure.

         In the course of his services, the Advisor has had and will have access
to Confidential Information (as defined below) concerning the Company. The
Advisor agrees that all Confidential Information has been and will be treated by
the Advisor as confidential in all respects. The term "Confidential Information"
shall mean all information, whether written or oral, which is disclosed by the
Company or its affiliates, agents or representatives to the Advisor or is
otherwise learned of by the Advisor in connection with his role as financial
advisor to the Company which information is not in the public domain, but shall
not include: (i) information which, prior to disclosure to the Advisor, was
already in the Advisor's possession and was not otherwise subject to an
obligation of confidentiality; (ii) information which is publicly disclosed
other than by the Advisor in violation of this letter; (iii) information which
is obtained by the Advisor from a third party that (x) the Advisor does not know
to have violated, or to have obtained such information in violation of, any
obligation to the Company or its affiliates with respect to such information,
and (y) does not require the Advisor to refrain from disclosing such
information; and (iv) information which is required to be disclosed by the
Advisor or his outside counsel under compulsion of law (whether by oral
question, interrogatory, subpoena, civil investigative demand or otherwise) or
by order of any court or governmental or regulatory body to whose supervisory
authority the Advisor is subject; provided that, in such circumstance, the
Advisor will give the Company prior written notice of such disclosure and
cooperate with the Company to minimize the scope of any such disclosure. The
Advisor's obligation under this paragraph shall survive the expiration,
termination or completion of this letter or the Advisor's engagement hereunder.

         The Advisor's engagement hereunder and this letter shall terminate on
the earlier of (i) March 24, 2006 or (ii) written notice of termination by the
Company to the Advisor or by the Advisor to the Company, it being understood
that the provisions relating to confidentiality and indemnification will survive
any such termination.

         This letter shall be construed and interpreted in accordance with the
laws of the Commonwealth of Massachusetts. This letter constitutes the entire
agreement of the parties with respect to the subject matter hereof.

         If the foregoing is in accordance with your understanding, please
confirm acceptance by signing and returning to us the duplicate of this letter
attached herewith.



                                      -4-
<PAGE>

                                             Sincerely,


                                             IDERA PHARMACEUTICALS, INC.



                                             By: /s/ Sudhir Agrawal
                                                 ------------------------------
                                                 Name: Sudhir Agrawal
                                                 Title: Chief Executive Officer

AGREED AND ACCEPTED AS OF
THE DATE SET FORTH ABOVE BY:





By: /s/ Youssef El-Zein
    -------------------------------
    Youssef El-Zein


                                      -5-